We came across a bullish American Express Company (AXP) thesis on ValueInvestorsClub by Hal. You can read the full article here. Below we summarized the AXP bullish thesis.
We like stock analysis posted by relatively unknown but brilliant investors on VIC. They add value to their thesis and put a lot of effort and time in the research.
Originally founded in 1850 as an express mail company, AXP today is a leading multinational financial services corporation, and a Dow Jones Industrial Average constituent. The name is synonymous with the credit card business.
Registered as a bank, AXP is regulated by the Federal Reserve Board for its lending operations. As with most networks, the company has three primary source of revenues: discount revenues, card fees and net interest income. The net interest income segment contributes 90% of the revenue. The company has successfully scaled up both sides of its business equation – widespread merchant acceptance and growth in consumer count. Total spending through AXP’s cards has doubled from$620 billion to $1.24 trillion. As of 2019, total cards have more than doubled from 49 million to 114 million. As ROE% and profit margins have improved, fixed costs have dropped from 44% to 29% of revenue.
Increasing share of credit card spending driving billing and discount revenue, and the switch from offline to digital payments are long-term industry tailwinds. In the U.S., credit card plastic’s share of consumption expenses jumped to 27% in 2019 from 20% in 2006. The analyst noted that the company’s share of credit card spending has increased and it has reached the levels of Visa of Mastercard networks.
The much-dreaded reduction in travel and entertainment spending and loan write-offs did not affect AXP as it had made provisions for these eventualities. A decline in travel dented the company’s business in 2020. But these losses were not severe and did not pose an existential risk to the company.
The stock price did tumble 50% during the February-March, 2020 period though. With charge-offs being consistently lower than the comparable names such as Discover and Capital One, the company’s credit card portfolio remains strong in the peer group. The drop in the stock price makes it an attractive long candidate.